Navigating CEE Business amid the EU’s New Competitiveness Focus

For CEE, the discussion highlights the region’s diverse economic models and varying exposure to global supply chains. This also feeds a wider CEE concern that the competitiveness agenda may evolve into a two-track or multi-speed EU, in which participation in major industrial, defence and financing initiatives is concentrated among a smaller core of member states, with Poland increasingly the only CEE country consistently present in that core group (so called “E6 group”), while other Central and Eastern European countries risk being sidelined.  

The debate surrounding “Buy European” reflects a broader transformation in European economic policy. Faced with intensifying global competition and geopolitical uncertainty, the European Union is reassessing how to balance openness with industrial resilience. Following the Letta and Draghi reports presented in 2024, the EU initiated plans to strengthen its industrial base amid rising geopolitical tensions and global trade competition. Policymakers are exploring measures that could significantly reshape procurement rules, investment frameworks, and industrial policy across the Single Market. While these initiatives aim to reinforce Europe’s strategic autonomy and manufacturing capacity, they are also generating significant debate among Member States—particularly across Central and Eastern Europe (CEE).

A New Phase in the EU’s Competitiveness Agenda

The European Union is entering a new phase of industrial policy focused on strengthening strategic sectors and increasing economic resilience. The European Commission has proposed the Industrial Accelerator Act (IAA), an initiative aimed at revitalizing European manufacturing across key industries, including steel, cement, aluminium, automotive, batteries, and net-zero technologies. One of the central objectives is to raise the manufacturing sector’s contribution to EU GDP from approximately 14.3% to 20% by 2035.

Within this broader policy framework, the concept of “European preference” has emerged as one of the most controversial proposals. Under the initiative, publicly funded projects could be allowed—or required—to prioritize products manufactured within the EU or those meeting specific low-carbon criteria. The proposal would also introduce verification mechanisms to confirm European origin in complex supply chains.

These measures reflect a broader shift in EU policy thinking. Traditionally, the EU has championed open procurement and global trade integration. However, growing competition from heavily subsidized industries in China, alongside protectionist measures in the United States, has prompted a reassessment of this approach. European leaders have increasingly framed industrial resilience and strategic autonomy as central pillars of competitiveness.

Addressing Europe’s Competitiveness Gap

The economic case behind the EU's motivation is stark. The Draghi report argues that Europe faces an annual investment gap of roughly €800 billion, equal to about 4.4–4.7% of EU GDP, if it wants to keep pace with the green transition, digitalisation, defence needs and global technological competition. The report also highlights a widening productivity and income gap with the United States, driven in large part by weaker innovation performance, less risk capital, and more fragmented markets for scaling firms. Europe produces more start-ups than the US, but only around 20% of the number of scale-ups found in the United States, while the EU has far fewer unicorns — about 110, compared with 687 in the US.

Business surveys add to the picture. According to BusinessEurope’s January 2025 report, more than 60% of EU companies see regulation as an obstacle to investment, and 55% of SMEs report regulatory barriers as a significant constraint, which helps explain why simplification has become such a central political theme in the Commission’s competitiveness strategy. Europe also underperforms in capital-market depth and exit opportunities: it represents only about 11% of global IPOs, compared with 38% in the United States and 18% in China, which limits firms’ ability to scale domestically and often pushes promising companies to seek financing abroad. These figures are repeatedly used by the Commission and outside analysts to justify a package that combines deregulation, market integration, industrial support and targeted European funding, rather than relying on any single instrument alone.

Diverging Perspectives Across CEE

While the broader goal of strengthening European competitiveness enjoys widespread support, Member States remain divided on how far the EU should go in introducing protection-oriented policies. France has been the driving force behind the “Buy European” criteria, framing it as essential for sectors like automotive, chemicals, steel, and pharmaceuticals. Central and Eastern Europe illustrates this divergence particularly clearly.

A significant moment in the debate occurred in December 2025, when nine EU Member States circulated a joint policy document urging caution regarding the introduction of European preference rules. The initiative brought together a diverse coalition including the Czech Republic, Estonia, Finland, Ireland, Latvia, Malta, Portugal, Sweden, and Slovakia - urging “the highest possible caution” on Buy European, arguing that any European preference should remain a last resort, be limited to clearly defined strategic sectors, and be preceded by a full assessment of impacts on prices, supply chains and competition.  

A second, sharper non-paper from Estonia, Finland, Latvia, Lithuania, the Netherlands and Sweden, issued ahead of the February 2026 leaders’ retreat, argued that broad European preference criteria would clash with the EU’s open-market model and risk higher costs, weaker competition and possible retaliation, a concern especially strong in the Baltics given their highly open economies and deep integration with global supply chains.

Poland has adopted a more nuanced position. As a major manufacturing hub integrated into European supply chains, particularly in the automotive sector, Poland could potentially benefit from stronger European sourcing requirements. At the same time, policymakers remain wary of potential trade retaliation and the risk that restrictive rules could disrupt complex global supply chains that rely on non-EU components.

Hungary, by contrast, has signalled greater openness to the concept, framing European preference as a possible tool to protect foreign investment in industrial sectors such as EV / automotive manufacturing and to strengthen Europe’s broader industrial ecosystem.

Many experts emphasize that for countries in Central and Eastern Europe – especially the medium and larger ones – to fully leverage the potential of the Investment and Innovation Agenda, funding should be directed more strongly towards those that face higher transformation costs. This would help offset the higher costs of adjusting production to new European requirements. According to them, without such an approach, there is a risk that “Made in Europe” policies will primarily benefit the most advanced economies, rather than strengthening competitiveness across the entire EU.

Broader Competitiveness Reforms

The Buy European debate forms part of a broader effort to address structural challenges within the European economy. Policymakers increasingly acknowledge that fragmentation across national regulatory systems and insufficient investment have weakened Europe’s global competitiveness. In parallel, EU institutions are advancing a much wider package of complementary reforms:

• The Commission is also pursuing simplification through omnibus packages and horizontal regulatory reviews intended to cut compliance costs and accelerate permitting, especially in energy, digital and clean-tech sectors. In this context, the Digital Fitness Check is becoming an important part of the debate: it signals a new phase in which the EU is not only creating new digital rules, but also reviewing whether its existing digital framework is too fragmented, too burdensome, or insufficiently supportive of innovation, scale-ups and technological leadership. A related file to watch is the delayed Cloud and AI Development Act (CAIDA), which is increasingly viewed as a major test of European tech sovereignty, as it is expected to shape the framework for sovereign cloud and AI infrastructure and help determine whether EU policy can reduce dependence on dominant Big Tech providers.

• One proposal is gaining traction with the recent introduction of a so-called “28th regime” or "EU Inc” by the European Commission, an optional EU-wide legal framework designed to simplify cross-border operations for innovative companies. Under this concept, startups and scaleups could operate under a single harmonized regulatory system covering corporate law, taxation, and insolvency rules, rather than navigating the different legal systems of 27 Member States. Supporters argue that such a framework could significantly boost cross-border investment and help European technology firms scale more effectively. In practice, however, this opens a difficult political dilemma: if member states genuinely want to cut red tape for innovative firms, they may have to accept deeper EU-level integration in areas that remain politically sensitive, such as company law, insolvency, supervision, capital markets and possibly parts of taxation or labour-related rules.

• Financial support is also being strengthened through the proposed European Competitiveness Fund (ECF), which would form a central pillar of the EU’s next long-term budget for 2028–2034. With a proposed allocation exceeding €400 billion, the fund would consolidate multiple existing programmes under a single funding framework, simplifying access for companies and national authorities. The ECF would focus on four major strategic priorities: industrial decarbonization and the clean transition, life sciences and bioeconomy innovation, digital leadership in areas such as artificial intelligence and semiconductors, and resilience in sectors including defence, raw materials, and space technologies.  

Key Considerations for Businesses

For international companies operating in Europe, the evolving competitiveness agenda raises several strategic considerations. How does Speyside support companies navigating this environment?

• Monitoring policy developments closely – The debate around European preference is ongoing, and final legislative proposals may significantly affect procurement access and supply chains.

• Assessing supply-chain exposure – Companies should evaluate how potential origin requirements or procurement criteria could affect their sourcing strategies and production networks.

• Engaging with policymakers and industry stakeholders – Early engagement can help businesses contribute to shaping practical and workable policy outcomes.

• Understanding funding opportunities – New initiatives such as the European Competitiveness Fund could create significant financing opportunities for projects aligned with EU strategic priorities.

FAQ: EU Competitiveness & “Buy European” CEE Implications

Q: What is driving the EU’s renewed focus on competitiveness and industrial policy?

A: The EU is responding to increasing global competition, geopolitical tensions, and a widening productivity gap with the United States and China. Reports by Enrico Letta and Mario Draghi highlighted significant investment shortfalls and structural weaknesses, prompting policymakers to pursue a more interventionist approach combining industrial support, regulatory simplification, and targeted funding.

Q: Why is the “Buy European debate” particularly important for CEE countries?

A: CEE economies are highly diverse and deeply integrated into global supply chains. While some countries could benefit from stronger European sourcing requirements, others –especially smaller, open economies – are concerned about higher costs, reduced competition, and potential disruption to established trade relationships.

Q: How are different CEE countries positioning themselves in the debate?

A: Positions vary significantly. Countries such as Czechia, Slovakia, and the Baltic states advocate caution, emphasizing open markets and global integration. Poland takes a more balanced approach, weighing industrial opportunities against supply-chain risks. Hungary, meanwhile, has shown greater openness, viewing European preference as a tool to support industrial investment, particularly in automotive and EV sectors.

Q: What broader reforms accompany the EU’s competitiveness agenda?

A: The EU is advancing a wide package of reforms, including regulatory simplification, capital market integration, and new instruments such as the European Competitiveness Fund and the proposed “28th regime” for startups. These aim to reduce fragmentation, improve access to financing, and help European firms scale more effectively.

Q: What does this mean for international businesses operating in Europe?

A: Companies should closely monitor policy developments, assess supply-chain exposure, and engage early with policymakers. At the same time, new EU funding instruments may create significant opportunities for projects aligned with strategic sectors such as clean tech, digital infrastructure, and defence.

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